費利浦·麥克莫蘭銅金 (FCX) 2009 Q3 法說會逐字稿

Welcome to the Freeport-McMoRan Copper & Gold third quarter earnings conference call.

At this time, all participants are in a listen-only mode.

Later we will conduct a question-and-answer session.

(Operator Instructions) I would now like to turn the conference over to Ms.

Kathleen Quirk Executive Vice President and Chief Financial Officer.

Please go ahead, ma'am.

Thank you and good morning, everyone.

Welcome to the Freeport-McMoRan Copper & Gold third quarter 2009 earnings conference call.

Our earnings announcement was released earlier this morning and a copy of the Press Release is available on our Web site at FCX.com.

Our conference call today is being broadcast live on the internet, and anyone may listen to the call by accessing the webcast link on the internet home page.

We have several slides to supplement our comment this is morning.

We will be refer to the slides during the call.

They're also accessible using the webcast link on our FCX.com web site home page.

In addition to analysts and investors the financial press is also invited to listen to today's call, and a replay of the call will be available by accessing the webcast link on our home page later today.

Before we begin today's comments I would like to remind everyone that today's press release and certain of our comments on the call include forward-looking statements.

Please refer to the cautionary language included in our press release, the slide presentation, and to the risk factors described in the SEC filings.

On the call today are Jim Moffett, Chairman of the board, Richard Adkerson, President and Chief Executive Officer.

We also have Red Conger with us today as well as Mark Johnson and Dave Thornton.

I will start by briefly summarizing our financial results and then turn the call over to Richard, who will be referring to the slide presentation materials and after that, we will open the call for the questions.

Today, FCX reported 2009 third quarter income attributable to common stock of $925 million, $2.07 a share, compared with $523 million or $1.31 a share for the third quarter of 2008.

For the nine months period ended September 30, 2009, FCX reported net income of $1.6 billion, $3.70 per share, compared with $2.6 billion or $6.20 per share for the nine months, 2008 period.

Our third quarter copper sales totaled 1 billion pounds.

That was similar to last year's third quarter, but higher than our July 2009 estimate of 910 million pounds, as we had access to the high grade section of Grasberg during the period.

Our gold sales were -- of 706,000 ounces or significantly higher than last year's third quarter of 307,000 ounces, and our July 2009 estimate of 550,000 ounces reflected accelerated mining of a high grade section at Grasberg.

Our (inaudible) sales during the quarter of 16 million pounds were lower than last year's level of 19 million pounds, but slightly better than our July 2000 estimate of 15 million pounds.

Our recorded copper prices for the quarter averaged $2.75 per pound, that was lower than last year's third quarter which averaged $3.14 per pound.

Our gold prices averaged $987 per ounce during the third quarter of 2009, and thats compared with [$869] per ounce in the year ago period.

Our malignum realizations were 1395 per pound.

That was about 57% lower than last year's $32 per pound level in third quarter of 2008.

As you will see from the Press Release our results reflect strong performance at all of our operation and continued successful execution of our plans which we will talk more about in the slides.

Consolidated unit net cash costs which exclude our (inaudible) operations which are currently in start up average $0.50 per pound to the third quarter of 2009, substantially lower than last year's level of $1.29 per pound.

Strong cash flows were generated in the third quarter totaling $2 billion.

That brought the year-to-date number to $2.9 billion.

Capital expenditures during the period totaled $244 million bringing the year-to-date total to $1.1 billion.

We ended the quarter with debt -- total debt of $6.6 billion, and consolidated cash of $2.3 billion.

We took steps during the quarter to repay debt through October, through yesterday.

We had repaid total of $638 million in debt including $340 million of redemption of our 6.875 notes and market purchases of our 8.75, 8.25, and 8.375 senior notes.

We also called for redemption our 5.5 convertible preferred stock during the quarter, and that was converted into 17.9 million common shares.

At the end of September, we had 430 million common shares outstanding, and assuming conversion of our 6.75 mandatory convertible preferred stock which is mandatorily convertible in May of 2010, we would have between 469 million and 477 million common shares outstanding.

We also announced today that our Board has reinstated an annual cash dividend on our common stocks of $0.60 per share.

That would be $0.15 per share quarter.

Now, I would now like to turn the call over to Richard who will be referring to the slide material.

Thanks Kathleen.

Good morning everyone.

We've all livered through a very interesting year this past year and just thinking back to our call a year ago, we had been several weeks into the process of starting the changes to our business that the results for this quarter reflect tremendous uncertainties facing us because of the -- of the real desperate situation in the world's financing industry a year ago.

We knew we had changes but this time last year we didn't know exactly what those changes were going to have to be.

We had reported a good quarter in the third quarter of 2008, and now to look at this results for the third quarter of 2009 (inaudible) we wouldn't have expected them to have been so much stronger than they were a year ago.

We still have some uncertainties in our business but we've shown we can adjust to changing economic conditions, and we're tremendously optimistic about the future of Freeport-McMoRan Copper & Gold as we look forward because of the assets that we have our ability to manage those assets and with the positive outlook for the markets that we operate in.

Some real key numbers to focus in on are simply the level of earnings that we generated, the $2 billion of operating cash flows we generate in the quarter with only $240 plus million of capital expenditures is very strong performance.

And that's really illustrated on slide four where we show some results.

Reducing our pre by-product credit costs by over 30% year-on-year is a significant accomplishment.

When we look at the work that our team, Red [Congress] team did in North America and South America, where we set some very aggressive plans to change our cost structure and adjust our production profile and our capital spending, and the team really executed that in South America.

But particularly important in North America where our costs were approaching $2 a pound in the third quarter of 2008, to now have this positive result in our malignum the business which was just beginning the significant downturn in prices a year ago, Dave Thornton did and his team did an excellent job in adjusting the primary malignum business supported by our by-product business to meet these changes.

And then the great Grasberg mine, Mark Johnson and his team with the ability to have access to the highest grade section of that mine during this time so that we'd generate such strong copper volumes but also particularly such strong gold volumes at a time with positive gold prices all adds up to a great operating performance.

Even based on our estimates as recently as those at the end of the second quarter, we had 10% more copper and 28% more gold and 7% more malignum.

So, volumes were good, cost management has been good, plus the fact that from a mine sequencing standpoint, we were at a high grade section of the Grasberg mine and that occurs periodically, to the times we have to mine lower grade sections, but the good news is when we had that opportunity to us, our guys took full advantage of it.

And that added up to the strong performance.

Kathleen talked about the cost structure on page five.

There you can see what it is by geographic area.

As I mentioned North America, which had unit costs of net unit costs of $1 a pound, and costs before credits of $1.22 reflects a really remarkable change from a year ago, and of course Indonesia benefited by the strong gold prices and strong gold production particularly the production volumes had the large credit which resulted in us having a $0.50 a pound overall.

You can see how our sales mix are by regions.

We have a spread between North America, South America, Indonesia, with a very significant gold production from Indonesia.

Markets today of course driven by China, China is having record imports.

There's a story out today about the confidence that the Chinese Government expressing about its economy, no question some of those imports went into restocking into inventory builds, but underlying that is a very strong internal Chinese economy which going into the year was a matter of concern because of weakness in its exports and concerns about the real estate markets.

But today we're seeing that the internal economy is really trumping those concerns as -- as automobile production in consumer spending infrastructure spending on item that are consuming commodities, really are driving that economy, and in the face of weak demand for copper and malignum in the US, Europe and Japan we see this relatively strong market which in those economy even though the demand is weak, inventories are extraordinarily low.

So, recovery in the developed world's economy is going to lead to a need for consumers to buy, and when you add the coming recovery we don't predict when that might be on top of a world of -- a strong demand from China and the rest of the developing world.

And match that with the continuing problem that the industry is having in terms of finding new projects to invest in and having operational labor issues and other factors that are affecting supplies from the aging existing mines is what gives us such a tremendously positive outlook for the markets in which Freeport-McMoRan Copper & Gold operates in.

Page seven shows where we are with the terms of our outlook with our existing plans.

We are taking some steps today to invest in some projects that we had deferred.

We'll talk about had that in a few minutes but we're not undertaking a large scale change to the strategy that we put in place at the outside of 2009 to reflect the conditions and this plan shows that based on those operating plans that we will be looking for having copper sales in 2010 in roughly the same levels where we have today.

We'll have a strong gold year at Grasberg affected by mining sequence and it won't be as strong in terms of gold sales next year as it was this year.

But still roughly 2 million ounces is a strong year for us and our malignum plants will continue to constrain our production and sales to match the market's needs for the product.

Page eight gives the outlook for the fourth quarter.

This is again reflecting our mine plans.

We have successful at Grasberg, which historically we've been able to do, when we're in this high grade section of taking our short-term operating plans and optimizing them and because the grades at the core of the Grasberg mine are so high, some relatively small changes in terms of accessing more volumes, more ore volumes translates into large volumes of copper and gold And so, we continue to do that.

It's something that, that we -- that its just part of an optimization, not a change in our long-term plans our long-term plans are built to maximize MPV for the ore body and to main -- geotechnical safety for the pit and that will continue to override what we do, but simply by taking advantage of having access to -- to high grade ore, we are able to add additional volumes.

We'll continue to do that in the fourth quarter.

This is our outlook, and we'll -- but you should take that into account in thinking about where we'll be as we go forward.

Add all that together and page nine shows what our outlook now would be for our, our cost structure for the full year 2009.

Very positive again just couldn't be more pleased with seeing this outlook at the end of the third quarter based on where we were going into the start of 2009.

And to have a consolidated unit net cash cost of $0.60 a pound with copper prices being where they are today results in our company being very profitable and very cash flow positive.

Exploration continues to be the major feature of our company.

And when we -- it is for any natural resource company in large part, but for us, because of the assets within our portfolio, and the ability to add reserve -- resources, reserves and ultimately development costs from those projects, it is something that -- that points to a very positive long-term future for us.

We reduced our expenditures for exploration this year.

We were roughly $250 million for '08.

Our budget for this year is $75 million.

We continue to see opportunities that provide for some incremental spending.

We had a lot of data that we generated in 2007 and 2008 from an extensive amount of core drilling, and our team is analyzing that data, and folding it in to our, our mine plans and our future mine plans.

We will continue to have the ability to add reserves and we're developing plans for what we want to do long-term in terms of doing core drilling and exploration analysis or ore bodies really focused on our existing producing mines where we have the ability to add reserves and add future expansions, in a much more straightforward way than you do faced with green field development in the world today with all of the challenges, in terms of getting permits and community acceptance of new mines

The model that we show every year based on the outlook for our cash flows is shown on page 11.

We show it over a range of prices and then on can page 12 for analysis purposes we show sensitivities to our model, based on different prices so that you can get look at it.

But it -- roughly today's copper price, we are looking at approximately $6.5 billion of 2010 projected model, I'll say modeled EBITDA and $4.5 billion of operating cash flows and you'll see we have relatively low capital expenditures as we go forward.

Prices are higher.

We are very leveraged to commodity prices.

Each $0.10 change in the copper price affects our operating cash flow numbers by $260 million.

So, $0.20 is over $500 million of operating cash flows to those numbers and copper prices are volatile.

The near-term outlook for prices is one in which you could develop scenarios for weaker prices or stronger prices.

We're going to be prepared to operate in whatever scenario develops but this gives you an outlook for just what our company can do in this environment.

Page 13 shows the current capital expenditures outlook.

We are now in our annual cycle of developing our plans for 2010.

So, we're looking at all of this and they're likely to change.

For 2009, we're now looking at capital expenditures of 1.4 billion which is consistent with what we've been saying throughout the year, roughly half of the spending level we had in 2008, we have added a couple of projects that I'll mention, that would increase the current outlook for 2010 to 1.4 billion.

But that is subject to our continuing analysis of where we're going.

These projects include a couple of things that are mentioned on page 14 at the old historical mining district of Miami globe, just east of Phoenix here, which was key for the mining industry, for many years, we have significant reclamation of activities ongoing from historical mining activities.

We had had a plan to mine the material in connection with the reclamation activities we have deferred that, we're reinstituting that.

Originally we thought it would cost $100 million, but because we have excess equipment because of the adjustments we made to our Arizona operations and to scale back high cost incremental pounds we now can do this project for a much less $40 million.

And it will give us some copper, while we'll advance our reclamation activities.

At our large mine in Peru, the Seraverti mine, where we had the opportunity and the long-term plans to have major expansions, we're continuing to drill the resource there and we have the information available to us that would justify a major expansion.

We are going to go forward with a optimalization programs spending about $50 million to increase the mill rate there and add $30 million per year of incremental copper at a very low 30 million pounds of incremental copper at a very low cash cost.

Both of these projects have extraordinarily high rates of return.

At (inaudible) our major mine in Chile, we are in the final stages of mining the oxide ore body that was available to us.

We had had a project that called [sulfurlix] that we had worked on for some time to look at how we would approach the development of a very large and growing sulfide ore opportunity.

We had originally planned to start that in 2009.

We deferred it for a year and have been in the process of thinking about what to do going forward and we've now made the decision to proceed with the [sulfurlix] project.

This is a very positive brown field expansion, extends the mine life by ten years providing significant copper production.

We'll have $450 million of capital to be spent over if next three years, and of a $600 million total project, this -- since [Phelps Dodge] transaction, the drilling data that we've gotten from (inaudible) has really been very encouraging [encolonelling] and beyond this project we're looking at potential for other expansions perhaps partnering operations with nearby mines to develop the, the very large sulfide ore body through a mill opportunity.

At Grasberg, we have continued in 2009 under our constrained capital program, continue to invest in the underground ore bodies which we've now completed the expansion of the DOZ mine to 80,000 tons per day.

That's one of the world's if not the world's largest single block caving underground mine.

They're in the shadow of the big Grasberg open pit but it is a very large profitable and efficient operation.

We were investing in a smaller high grade mine called the big (inaudible), and in the Grasberg block aid we're continuing to to do what's needed to develop that ore body so that when the Grasberg open pits depletes, which we are projecting around 2015 and we'll continue to evaluate that, we'll be able to immediately go into operation with the block caving operations for the very large extension of the existing ore body that we're now mining at the surface, to mine that and a very large block caving operation underground.

We're very comfortable with our technical about to do that based on our 20 plus years experience -- 25 year experience of minning underground and then we are also completing the feasibility study to mine the very large reserves that we have.

We have established adjacent and underneath the DOZ mine, the deep MLZ mine, and that will be available to us to start up as a DOZ mine ramps down.

This is a continuation of that block cave mining that we begin really in the early 1980s is we just go deeper and identifying the ore body completing the development.

All of these in the context of an industry that has challenges in finding attractive economic investment opportunities, are very highly attractive because there large volume, long life, and very low cost.

(Inaudible), again very pleased with what our construction group and our operating team has been able to accomplish in a very difficult environment because of its location in central Africa.

The absence of infrastructure, and just the challenges of doing business in a place where infratstucture has deteriorated in the mining industry and really -- had really dried up.

We began construction there early in 2008 and in roughly a 15 month time period we had completed the basic plant, and had begun to produce copper, our first copper came out in March, and during the third quarter, we produced 54 million pounds of copper, the construction activities for the mine, the copper processing facilities, cobalt facilities and the SO2 plant are now complete.

By late in the third quarter, we had reached design capacity for the copper production and we're continuing to ramp up and deal with start-up issues for the SO2 plant, which has a big impact on cobalt production.

So, we are, we are, we are actually operating moving product to market, and selling it.

We have started a feasibility study, which we will commence.

We've done planning for it, talked with engineering firms to evaluate our second phase of this project, its more than optimization effort which will require low amounts of capital, but it would give us the ability with really very little capital to expand capacity by roughly 50%.

This is -- we're now on slide 18, the largest investment in the history of democratic republic of (inaudible) to date for this initial project approaching $2 billion.

Our partner recently hosted an analysts visit to the site and analysts who went there were able to see really a world class project in terms of its operating design and construction.

We built this project using the same standards that we would apply anywhere in the world.

We have developed significant infrastructure, set the stage for future expansions, we're investing in social and community programs, and in terms of the country, this project provides significant employment for a country that really needs employment opportunities for businesses by local contractors, significant taxes royalties, and dividend payments through the Government's participation.

We've paid a lot of taxes to date even though we haven't had production roughly just under $150 million -- just under $150 million.

We've made significant transfer payments to [Jackamean's] estate-owned companies.

So, its -- from the standpoint of the Government, if you look at this contract in relation to contracts around the world, this is a contract thats is very favorable with respect to the DRC as host country.

They get just over 50% of the total economics of this project through taxes, royalties and dividends.

We have been participating in a review of our contractor as all of the contracts in the country have been reviewed.

There have been, there's been publicity about positions that [Jackamean's] has taken and certain representatives of Governments to try to increase those benefits.

We're working very cooperatively with the Government to be responsive to issues that they raise and we'll continue to do so.

We are encouraged by comments that a number of people involved in the Government are making about seeing the benefits and the importance of this project from a countries perspective and are working to get this matter resolved although it is not resolved as we speak today.

Kathleen talked about our balance sheet and looking back, you know we took some steps that have been very positive in setting us up from a financial position and liquidity standpoint to deal with what we had to deal with this past year.

The equity raise that we did immediately after combining with [Phelps Dodge] in March 2007, the use of the cash that we generated when commodity prices were higher to reduce debt, and now that we're generating excess cash we're continuing to improve our balance sheet.

And today was $6.6 billion of gross debt and $2.3 billion of cash.

And a maturity schedule as shown on page 20 that has minuscule amounts of required debt repayments through 2014.

Our company is in a very strong position.

We recently through today have made $638 million of debt reductions through calling one issue of notes and retiring roughly $300 million in open market purchases.

We also took steps to call in the money preferred stock convertible security that was -- that was issued several years ago in connection with our acquisition that [Rio Tinto] owned and converted that preferred stock into common stock, and increased our cash flows by not having to continue to pay the preferred stock dividends.

We also have on our balance sheet, the mandatorily convertible preferred stock that we issued in 2007 that will mature in March of two-thousand -- in May of 2010, and that will [automately] go into common stock again eliminating the preferred dividend requirement for that issue.

So, we've got a strong balance sheet, strong liquidity position, we've shown that we can manage our costs structure in a very aggressive and positive way.

We have very attractive near term and longer term growth opportunities, which will expand as we continue our expiration activity, we will -- with the cash we are generating we will continue to look for opportunities to further reduce debt.

Today we have announced that our Board has authorized the reinstatement of a common dividend initially at $0.60 per share annually.

Our company has a long tradition of returning cash to shareholders in the form of dividends and share buy backs and we will be continuing to review our opportunities as we go forward.

That's a summary of the positive situation that we're in today, and operator, we'd like to open the line for questions.

(Operator Instructions).

One moment please for the first question.

The first question comes from the line of David Gagliano from Credit Suisse.

Thanks and congratulations on another strong result.

I was wondering if you could just share your thoughts with regards to the timing of ramping back up at some of the other US assets such as Morency?

Yes, Dave.

That is something that we began plans for it as we were curtailing operations.

The decisions we made about curtailments were made and we were going through that process this time a year ago of looking at alternatives and not only thinking about what we could do to reduce the in the near term, the high cost incremental pounds, but what would be the consequence of that in terms of that ramping up because we were confident at some point we would do that and we're continuing to review those plans now.

We are likely to make some changes in the near term.

But to have a full scale return to maximum production is going to be contingent on our seeing a evidence clear evidence of recovery of copper demand in the US and in Europe.

And we haven't seen that yet.

Same could be said for our malignum business.

It is going to be a situation that's available to us and we will act when the time is right when the market needs those commodities.

Okay.

Great.

And as a follow-up, lets assume for a minute that the assets that are shut down today, shut down or scale down -- stay scaled down.

On the mine site and delivery costs how should we be thinking about that number beyond Q4, is that $1.15 per pound sustainable into 2010?

It depends on input prices.

About 25% of our cost company wide are energy costs.

So, the price of oil has risen some with the price of copper, so that will have an impact.

But we -- every time we go through one of these things, and we've all been through several down cycles during the course of our careers, you learn things.

You learn things about your operations and you learn how to manage things and as we ramp up, we're going to be able to sustain some cost efficiencies that we've learned through this process.

You know our safety statistics are much better now than they have been this the past because we have on average a much more experienced work force, and we continually try to improve our safety programs, but there are things that you learn through -- going through a time like we did this past year, and we're going to be able to hold on to those.

So, for purposes of your modeling I would suggest you look at the elements of our cost and come up with your own estimates about input costs and then but the basic cost structure should be sustainable.

Okay.

Fair enough.

Thanks and congrats again on a good quarter.

Thank you, David.

Our next question comes from Michael Gambardella with JPMorgan.

Yes.

Good morning, Richard, and just congratulations to you, Jim, Bob, Kathleen -- everyone at the Freeport team for doing just a great job once again and beating everyone's expectations.

But, I have a question on one of your supplemental slides, slide number 29 which shows the copper equivalent cross section.

You know the mining sequence for the fourth quarter, and to me I don't know just, eye balling it looks like in fourth quarter, you're certainly -- looks like primarily in that high grade part of the core at the Grasberg mine.

Is there potential for you to exceed the third quarter copper output and the fourth quarter?

I think it would be overly optimistic to think that we could exceed the third quarter just based on -- the third quarter was in such a high grade section, this is a, this is just a cartoon type schematic, but you can see we are, from that that we had a home average greater degree of access in the third quarter than the fourth quarter.

What we have the opportunity to do is perhaps, I guess we have done in the last couple of quarters and historically, improve on our outlook, but to be able to get to that level that we had in the third quarter is overly optimistic.

And then just last question regarding Tenke, I know you've had a lot of cut off dates with the Government -- the Government has put out and negotiations come and go.

And I think the last one was a couple of Mondays but can you give us an update on those negotiations?

Well, its -- there's really not much to say, Mike, other than that we are, you know we're continuing those discussions.

This thing has been going on now for 2.5 years.

We had a process earlier in the year, with a special commission that we had made a lot of progress with, and it appeared that this was coming to a close.

There was in effect a new process started in early August that we have been participating with involving Government officials Jackameans and those discussions continue.

The -- from our standpoint, our position has been has been consistent in that we have a contract that was negotiated in a visible fashion from 2003 to 2005.

That contract is binding under (inaudible) law.

It has international arbitration provisions associated with it, in the event there's a dispute.

And we're operating under that contract.

We're not getting a new contract approved.

But its a revisitation review of our existing contract.

So, we've listened very carefully and we want to be cooperative and a good partner of the government.

Weve offered to do some things differently without changing the underlying contracts, and this is more or less a continuation of the same sort of discussions we've been having for a very long time.

Okay but, those three employees were acquitted a couple of weeks ago, is that right?

Or released?

Yes, that was a separate issue.

That had to do with a reported incident of corruption by a Government official who was convicted recently of embezzling money out of a bank -- a Government bank account that we were paying some fees for temporary workers into.

And in connection with the government's investigation of that, they did arrest three of our employees, and held a trial and those employees were acquitted in that trial.

We of course have our -- are doing our own investigation of these issues.

We take it all very seriously.

There was never any credible evidence that we have found or that was provided at this trial about any wrong doings from our employees and we of course were thrilled when the acquittal came down and they were released from being detained.

Okay.

Thank you very much, Richard.

Mike, I'm going to go back and let Mark Johnson fill in on my comments about where we are in our mine plant at Grasberg.

Because I think it would be interesting to everyone.

Yes the -- in the in the seven south area and the area that we were able to accelerate mining in the third quarter, that area is -- we've got about 10 million tons left in the pit bottom and as we complete that mining at seven south, which will be done about mid year next year, the 8 east deposit -- or the 8 east push back that you see on the cross-section --

Uh-huh.

Begins to take over, and right now 8 east is pr providing more than 50% of the ore and we'll -- as the seven south wind down, 8 east will continue to access better grades in 2010 and that will be the majority of our metal for 2010.

Okay.

And that's -- and this is something -- Mike, I know you've followed it for years and for those of you who've followed Freeport ever since the development of the Grasberg and as the mine matures -- and this is a very large open pit mine, almost three kilometers across and a kilometer deep.

With the high grade at the bottom of the pit our volumes are going to be effected at any point in time, it is just where we are in mine sequencing.

It is not a question of grades changing and so forth.

Actually the grades, the ore body are being very consistent with the models that we set, that we've established through all of our thousands of holes of cores that we've drilled and the volumes just vary quarter-to-quarter, year-by-year.

Our next question comes from the line of -- with Goldman Sachs.

Morning.

Good morning, Sal.

Just wanted to get some color on your cash or use of cash flow.

You have certainly a large chunk of cash on hand -- if we look at your expansion projects and the dividends reinstatement.

You're still left with significant cash, and understanding what would be the next step of the use of cash over the next six or 12 months?

It's -- it'll be a combined program of looking for potential opportunities in the marketplace to reduce debt.

We would like to reduce our debt.

We're only going to do that -- we don't feel like we have to do it.

We'll only do it if the market opportunity is there to do it on an economic basis.

We're going through our process right now of looking at our capital plans, assessing the marketplace, and when the opportunity's right we'll we look forward to the time of investing capital in our business because those are great returns, we -- we don't want to do that too quickly but we're also going to be prepared to do that, and then we will review on a continuous basis, with out board, the opportunities to return cash to shareholders.

Okay.

Great.

And another thing on Tenke where you are looking into optimization and increasing the capacity, can you give us a time frame?

What do you think its going to take to achieve that and to you -- is there enough infrastructure available to bring that copper and cobalt out if you -- when you achieve that?

Well, its stages -- its stages.

I mean the first stage is a relatively low cost, straight forward, opportunity to expand production by 50% and we're going to kick off the feasibility study for that but its -- we'll report more to you on that as we go forward but its a relatively low capital requirement.

There will be -- the next stage would be an opportunity to do a major expansion of the oxide ore and the resources there.

But that would require more capital and more time.

And then ultimately, the future of this project is going to be driven by the sulfide ore and there's a layer of mix oxide sulphide ore that is very high grade, and that would be part of the plant.

And that stage of dealing with the sulfide ore that it will require a significant amounts of additional infrastructure particularly from the transportation standpoint and we're talking with the Government now about restoring rental capacity.

There will be power investment, but we are -- everything we've done so far has been done with a view that we will ultimately invest to grow this project to be a world class -- world class ore body.

But it will be done in stages, and particularly as we look at the sulfide and mixed ore opportunity, we still have to do core drilling and expiration analysis and (inaudible) and development plan, but thats the stage that will require significantly greater infrastructure than what we have today.

Great.

Thank you very much.

Our next question comes from the line of Tony Rizzuto with Dahlman Rose.

Thank you very much.

Hi, Richard.

I just want to congratulations you, Jim, Bob, Kathleen, and your entire team taking the hard actions early on to position the Company the way it is today.

And I think that really should be applauded and certainly not forgotten.

I've got a couple of questions here.

And my first question is a strategic question.

Does it make any sense to consider becoming more agressive in hedging you inputs, like energy, and I am not only thinking about going through the futures markets but does it make sense to own energy sources with the Company now throwing off very substantial levels of cash and then I have one more question too.

Okay, Tony.

We continually look at opportunities and strategic views along those lines.

Philosophically, we see that there's a correlation between our input costs for energy and some of our other input costs and the price of copper.

So, that when copper prices weakened we benefited by the weakening of energy costs, and other input costs, and by the same token prices rise because those costs are a fraction of what our revenues are for copper.

We benefit even though those input costs rise.

Philosophically we're not a [hedginc] company, we don't see ourselves as traders and we really see ourselves as an opportunity for investors to get exposed to these commodities markets in an unhedged position.

Investors have the opportunity themselves to hedge of course.

But we basically have historically had a philosophy of not hedging.

Okay.

Even though at times obviously you can maybe attain some energy sources that might be lower costs just to provide even better margins for you, over the cycle to keep more of that in effect.

You know, Tony if you have hindsight, you can do that.

But if we had obtained an energy source, 15 months ago, when the -- when the prices were so high in hindsight that would have been the wrong time to do it.

So, its easy to look back and say if we had done X and Y at certain times, it would be good.

But we've been very successful over the years of approaching this thing on an unhedged basis.

And I know you have.

The other question I have for you is in regards to the Grasberg and in thinking about the transition to full underground mining in 2015, for modeling purposes, how should we think about your total production there, and also how is the site production delivery cost, how is that likely to change?

Well, the transition is going to take a period of time.

We can't begin the block cave until -- until the pit is depleted.

We can do development activities, get prepared to.

But the actual commencement of the caving operations will be at the time the pit depletes.

So, there will be a period of time where there'll be a ramp up, we've always had this valley approach during those early years, and we're taking some steps through what we are doing with the DOZ mine, what we're doing with big (inaudible) -- what we're going to be doing, or doing with stock piling material to help offset those.

The cost for the underground era is really again going to be a function of energy costs, we benefit underground in that we don't have to move waste rock like we do above ground, we don't have the kind of big haul type fleet and electric shovel fleet that we have above ground the cost structure is going to be very attractive.

It is attractive right now for our DOZ mine.

Labor is an issues, we're doing some training right now to prepare ourselves for that.

But let me just say that it s going to be, depending on input costs, a very attractive operation and over the life of the mine it will be something say less than $0.40 per pound net, at $800 gold.

That's great.

Thank you, very much Richard.

Congrats to all.

Thanks, Tony.

Our next question comes from the line of Mark Liinamaa with Morgan Stanley.

Hello, all.

Going into the downturn, you had outlined a plan to grow into the mid 4 billion pounds of copper production range.

I respect you're taking a cautious few and have outlined some growth plans now.

But based on your asset review that you've done in the meantime would you be able to say is that still a number for a production rate a copper environment that you would feel comfortable with?

Thanks.

Yes, Mark Liinamaa, thanks a lot for your question.

Absolutely.

I mean we -- the one thing we haven't done is lost any resource opportunity with what we have had.

Among other reasons but one reason we went forward with Tenke, was we obligations under our contract and we wanted to preserve that opportunity but all of the curtailments that we made our other operations are places where we own the rights to the resources and we can step up and expand them.

So, the 5 billion pounds plus of outlook that we had before is certainly there for us, I mean it requires investment and it requires some time to get there and with our exploration opportunity, we can see opportunities to grow beyond that level.

So, that we haven't lost any of those opportunities.

And if things really looked positive, you know would that be a realistic number say in 2012, 2013, how much longer?

Well, lets say if we were to unwrap everything and go forward by the end of this year I am not saying we will, its probably unlikely that we will be at that point then.

It would be a two year period from that point forward.

So, it is two plus years.

Thanks and good luck with continued progress.

Our next question comes from David Lipschitz with CLSA.

Morning everyone.

Question for you on the China situation.

There's been a lot of talk of a lot of off inventory copper.

Can you comment on that, do you agree with like the number of the million tons and things like that.

Or is that something that worries you?

David, It is what it is.

I wouldn't say it worries us.

We're encouraged by the growth of the Chinese economy and their spending on infrastructure, and the fact that the economy hasn't run into any, any of the really significant bumps in the road that were predicted earlier this year, we don't have any particular insight into the inventory levels.

We are expanding our commercial activities there, historically they had been a really small part of our business.

But we are, we are expanding our sales of copper concentrates into China.

We're selling cobalt into China, and selling some malignum there.

So, we -- as -- in term of what we are seeing from the commercial contacts we have there, people aren'tover concerned about this level of inventory.

The biggest concern that we hear from our Chinese customers, is the availability for copper for what there needs are going to be long term, and so they're -- they are projecting tremendous amounts of growth, the tremendous amounts of resources needs in a world where those supplies are very limited.

Just a quick follow up.

You talked about your uses of cash, reducing debt and assessing the market things like that are acquisitions on the table?

Its hard for us, everything is always on the table.

Its hard for us as we look at opportunities to find opportunities that compete with our own internal investment opportunities.

And I use this -- I make this comment many times, if you buy something, you end up having to pay for that resource to the current owner.

With our resource opportunities that we can invest in on our own, we have the resources and we can invest in them and capture all of that value for our shareholders.

So, if the right opportunity came to us and you can be sure that bankers are always in our offices and we have a group monitoring everything that goes on around the world.

The right opportunity is there, we're in a position to take advantage of it.

But it is very hard for the opportunities that we see to compete with what we have available to us internally.

Okay.

Thanks.

Richard, this is Jim Bob.

Let me just use that as an opportunity to talk about a couple of things.

We appreciate very much the congratulations of the quarter that Richard and the operating team have had.

But this multifaceted operations we have multi - or continents of granite production, and exploration opportunities but as far as acquisitions are concerned, the question gets asked every time.

We made the acquisition and put Freeport-McMoRan and Phelps Dodge together.

What we basically did was to set the stage for a huge development program to delineate the assets of both companies or more particularly the Phelps Dodge company because we had a -- in Indonesia we had a very active program that was delineating the bottom of the ore because of our underground operations, it was upcoming in 2015.

In many of the mines that were in the Phelps Dodge package, the oxide ore was the focus of the opportunity and I know everybody that has been following us knows the definition of oxide versus sulfide ore but for those who haven't gotten the picture yet imagine having a bunch of peaches sitting around and the -- some of the peach was ripened that was exposed to the oxygen, and the whole rest of the peach being there unrecognized.

That's what this oxide ore was a very good decision by Phelps Dodge, was to develop a process of leeching so that this rotten part of the peach, that was oxide could be taken and a dollar or less price environment in the copper business.

So, all of that was, was investigated and the drilling was done through the outline, the oxide ore.

And in many cases, we just talked about the (inaudible) situation, the good part of the peach that was considered not exposed to erosion was never delineated to any extent.

What we did early on in the merger of Freeport-( inaudible) and of dodge was to spend a lot of money, about a $300 million exploration program.

It was really a delineation program.

What we confirmed is that the sulfide part of the ore in all of these mines has tremendous new potential all the way from our newest to our oldest mines, newest being the great mine in the congo and really once again all that had really been evaluated there was the oxide part of the ore body because of the leeching of the -- opposed to having to go through the complete refiring process in a smelter.

So, all of these sulfide ore bodies, you could look at as being a second part of the acquisition.

We acquired the (inaudible) -- ore which was principally in the Phelps Dodge situation, the oxide ore.

Some information was available on the sulfide ore but with our increased exploration opportunity -- exploration/delineation, as we've told you before our called brown fields exploration opportunities that are done in the existing mines where we have existing infrastructure, is so far superior to going out and trying to buy new assets when you do a great merger which Richard and the team have not only done the merger but have continued to take the opportunity to combine the resources both the natural resources and the human resources.

And end up with this model for production that gives us a -- once again, a multinational, multimetal company that has copper, gold, [molly], cobalt and obviously with gold being over a thousand dollars an ounce, with the amount of gold we have produced at the Grasberg, which lowers our international production costs.

As Richard said our acquisition of the Phelps Dodge Freeport-McMoRan merger set the tone and therefore new acquisitions for us are very hard to find.

This acquisition we've put in these two (inaudible) together so good, is coming together so good its got years to run as far as defining the total potential.

So, I hope that puts the perspective again on why acquisitions, although always something that we will consider, are ust not as attractive as developing our own resources as a result of the Freeport-McMoan merger.

Thank you, Richard.

Thanks, Jim Bob.

Our next question comes from the line of Tony Chen with Merrill Lynch.

Hello, good day, everybody.

Hello.

Just a follow up on Tenke, can you just, just remind me, were there any obligations under the current contract to get to a certain production level beyond the 250 million pounds, lets say over the next couple of years?

Yes.

We have obligations with some time requirements to start feasibility studies.

I mean we're required to develop the resources if they're economically feasible and there was a time frame that required us to initiate feasibility studies once we reached commercial production for the first -- for the first phase of the development.

I mean this is consistent with what we want to do.

So, we don't see it as any kind of a onerous requirement, but there are timing requirements for initiating studies and to assess feasibility for resource development.

And that's typical with concession agreements around the world and we're in line with doing that.

Okay.

And the feasibility study is expected to take roughly how long you think?

You know, I'm not sure, six months or so.

We are just in the process of beginning to contract -- beginning to contact engineering firms to work with us on it and we expect it -- commence that study at the end of the year.

Okay, and the last question --

Understand, we are aggressive in wanting to develop this.

If you look at the -- we always point to the development of Grasberg.

That, we had been operating at that site from 1972 to 1988 when the discovery holes were drilled and from drilling the initial core holes into the Grasberg, ten years later we had spent almost $4 billion and had gone from an operation that had less than 20,000 tons to date through its mill, to one that was operating at 240,000 tons per day.

So, in terms of aggressiveness and development this is a company that's committed to that and with the -- with -- given cooperation, with the Government, the ability to operate the development of infrastructure and what we believe is going to be very attractive markets within the coming time frame we're going to be very aggressive about development there.

Okay.

And then just last question, can you just talk about how the IMF could potentially play a role in helping to iron out the negotiation process with the Government here?

Well, the IMF is not directly involved in our project, they -- IMF and world bank and other international institutions are working with the Government in terms of its overall financial situation.

And you know, as Hilary Clinton recently visited the DRC in connection with her trip to Africa.

She was encouraging the DRC and other African countries to take steps to encourage private foreign investments.

So, I think all of that, the world wants to see Africa and the DRC succeed and success requires significant private investment by reputable companies and that's what we bring to the DCR.

Great.

Thanks.

Good luck.

Our next question comes from the line of Brian MacArthur with UBS Securities.

Good morning.

I just wanted to see if I can some get more color on (inaudible) now that we're back on the table, and I just have about three issues.

First of all, will there be any fall off in production, or is the timing now set up, that you can do ahead, and once the (inaudible) is run off, we'll just maintain the steady state, sort of at around 300 million pounds plus.

And I guess my second part --.

The answer to that Brian, is yes, we will -- we should be able to sequence this, because we're are building a new leech pad and with the ability to sequence spending we ought to be able to maintain relatively stable levels of production.

And then I assume the second part of the capital up from 450 to 600, in 2015, that's just continue to build additional pads in the future.

That doesn't get you anymore production, or is it because the grade falls or something , or what's the extra 150 out past

That's just to sustain the production levels for the life of the ore body.

The life of the ore body.

And I assume none of this relates to what you talked about in the call earlier, that I would call (inaudible) too, that there's some more ore outside of what you are seeing right now which might lead to a larger operation with or without a potential partner going toward.

Everything you've talked about today is just stand alone on the 300 million ten year extension.

That's exactly right.

And this is one of the things -- and I'll refer back to Jim Bob's comment, that you go back to the time we combined the Companies, we knew about the sulfulix project, we knew that that was -- that was built into our plans of having to have a longer -- (inaudible) life of significant volumes at attractive costs for (inaudible).

What we've learned since then, though through our exploration activities that there's much greater opportunity now than we thought 2.5 years ago.

Well, I guess that begs the question why you just don't ramp it up bigger right now given, is that just a cautious view, it sounds like you have the data, doesn't strike me that its capital constraint view given your cash flows.

What is it that just holds it up?

Is there --

Well we looked at that.

I mean that was one things that we analyzed as to whether or not we'd go straight to a mill opportunity.

You know from doing business in the (inaudible) desert, the challenges are power and water, and so we are continuing to analyze those just to find ways of meeting those challenges efficiency.

But what we -- what our analysis showed us is considering the timing for going forward with the mill development, it was economic for us to go forward with this sufulix project, in terms of maximizing MPV.

So, we're not -- this doesn't eliminate the mill but if we're going straight to a mill we would have -- we would have not had the benefits near term of the economics that we get sulfulix.

Okay.

Great, and just maybe on another comment you made earlier about Miami, capital costs came down from 140 million, because you said you could basically use equipment from other shut down mines?

I assume you're going to go ahead and do that.

Does that in anyway really slow you down in bringing back any of the other production in the US southwest that I guess David was asking about?

Or is that just a, you know a purely an economic timing trade off that we can move the trucks over to Mimi and it will be cheaper than reopening the other stuff.

The US southwest or is there a reclamation requirement that makes you go back to Miami and do that first?

Well there was reclamation that we're going to have to do in any event.

So, that's the context that we were dealing with.

Before when we were buying trucks to support our mine plant and other mines -- the -- to do the Miami project, we were going to have to buy new equipment.

Now, we have that equipment thats available to us, its just rather than have that equipment sitting idle, we're going to put it to work near term.

Okay.

And then would that be fair to then assume that the Miami -- cash costs at Miami would be lower still though than the shut -- than currently shut down other US southwest operations.

Yes, its going to be in the dollar range, and again that's because it is mining for reclamations.

So, I mean its taking costs that we were -- some of the material we were moving, we're going to have to move anyway.

So, now we will capture some copper out of it.

Great.

Thank you very much.

Congratulations on a great quarter and good luck with all of your opportunities going forward.

Thanks Brian.

We appreciate it.

Our next question comes from the line of Jorge Beristain with Deutsche bank.

Yes.

Good morning, Richard, and again everybody congratulations on a really strong quarter.

My question was really more about the 2010 guidance for gold, I think that's really a lynch pin to perhaps why the street may have a lower year-over-year out look for you guys and if you could just kind of quantify the certainty with the projections for lower gold output at Grasberg.

You've been annualizing out output at a rate of over for 3 billion pounds -- sorry, 3 million ounces for your company and next year you're quoting closer to a range of less than 2.

So, that 1 million-ounce fall off in gold is a big head wind, and I was just wondering given that you've already, for two sequential quarters, sort of beat your own internal guidance if you are not feeling a little more optimistic about your baselines for 2010 guidance at this point, in other words they have upside from here.

Well, let's see Jorge, this goes back to the comments that Mark Johnson had, we are transitioning from one mine phase, the seven south, to the 80 east phase which is at a higher elevation, where grades are lower and then we'll be lowering 8 east down to higher grades over time.

So, we're -- that's our mine plan and we will be following that mine plan.

So, we know that that mine plan, based on what our models show us for the grades and the sections that we're planning to mine, this is -- this is our current, best outlook.

And so its not -- you can't compare an annual run rate for what we've done the last two quarters with what we'll do in any future quarter because we're just simply mining in a section of the mine that has different grades.

Its still extraordinarily high grades, its just, this is the -- the heart of this great ore body that we've been mining.

Now, I'll go back and say that as we then, on a day-to-day basis, execute these mine plans, Mark works with our team in (inaudible) and his guys, and they make decisions to say here's some high grade ore that we can access.

And if we can do that in a way thats not disruptive to our longterm mine plan and that acts within our parameters of geotechnical safety, we do that, and so particularly I just go back and say this -- particularly when we're in the higher grade sections of the mine and in 2010 we will be, you know, not as high grade as we were in the third quarter but a very high grade section of the mine.

Those decisions to access small volumes of ore can translate into larger volumes of copper and gold because the content of that ore is so high.

So, I think that we will have likely opportunities to -- to improve on 2010.

You can't guarantee that, but history has shown that we've had ability to do that.

But it won't be going back to the quality of the ore that we've mined in the third quarter.

We don't see that as head winds.

I mean I know I know analysts have to come up with quarterly estimates and annual estimates.

We look at this as a long-term ore body, that is going to provide really strong volumes at very low costs, and strong cash flows and that's what we operate this thing for.

Sure, fair enough.

And I appreciate that color.

The second question I had was just regarding the baseline dividend that you declared for 2010 at $0.60.

Historically you've had the flexibility when you're paying that quarterly runrate in the third quarter of last year you were paying around $0.50 to just on any given quarter, start to bump up that rate.

Should we take the $0.60 baseline for 2010 as (inaudible) at this point, or do you upside flexibility as you get into 2010, again getting back to this idea of excess free cash flow would you allow yourselves the flexibility to change that policy sort of, intrayear?.

Absolutely, our board reviews financial policy every quarter.

As you noted in 2008 we actually increased the dividend, we had done that a couple of times since we merged with Phelps Dodge.

In the past we paid some special dividends, depending on market conditions we have an authorized stock buy back program.

So, we'll be, to the extent the markets are strong, we're funding our capital expenditures we are taking advantage of opportunities to reduce debt, excess cash, you know, the priority would then looking to return to shareholders.

Great.

Thanks very much.

Richard let me just make a comment about the projection of our goal.

When you're looking at the open pit as you just brought up in your question, the symetry of the open pit we have no latitude because we have to keep that high wall from being in a position to have any kind of a slump.

As we go underground if you look out past 2015, you get into this big, golden horseshoe -- as we call it the bottom of the pit which we might -- in and out of, because of the symetry of the open pit.

Once we get underground they were block caving, we don't have the high wall to deal with.

So you will have a lot more focus on being able to stay in the high grade ore.

So, in 2015 used to sound like a long way off, as we sit here about to approach 2010, it becomes ominous, and as Richard just said, the more focused ability, we're going to have all of the -- haul out of the open pit and don't have the symetry or the high walls to deal with, going underground can become a very efficient operation because you are literally sticking to core of the ore body where you can just take the high grade ore, and not have to take the waste on the high walls as we've done from the beginning of open pit.

Great.

Thanks very much for that color.

Our next question comes from the line of Charles Bradford with Affiliated Research.

Good morning.

A question about Tenke, it seems to have operated at about 85% of capacity in the third quarter.

When are you going to start including that in the financials?

Well, Chuck, its -- you're right about the copper production.

We're still in start up mode with SO2 plan and with cobalt and the cobalt component is an important factor in looking at our -- at our unit costs.

So, we will start including it in our overall -- the cost presentation.

You know, it is in our financials, we are making full disclosure about this.

You can see what the unit costs are right now.

So, we're not, it's not like there's not anything being disclose t.

Your question I think runs to the fact.

We were going to include it in our overall cost numbers, and once we reach design capacity in 2010, we will include it in our overall numbers.

Again as a segment as we do with North America, South America, Indonesia and Africa.

But all of the data is there.

So, you can see the unit costs (inaudible) right now.

No, I appreciate that and I have seen it.

In the sales profile that you've given going out 2010 exam beyond, I'm assuming it is in there.

Is that correct?

Yes, that's correct.

For the copper, yes.

And -- well, actually you don't do cobalt -- it doesn't matter, okay, thank you very much.

Thank you.

Cobalt does matter, chuck.

Oh yes, but you are not forecasting out the cobalt.

That's correct.

And you know, cobalt is important because as we develop this mine with we will be a large producer in relation to a very small global marketplace and our marketing team, is working right now on how we commercially deal with that market as being -- being a very large producer.

Will you start showing a series of charts on future cobalt sales?

Yes.

As we do with copper, gold and molly.

As we do with, everything we will have full disclosure on it.

Okay, thank you.

Thanks chuck.

Our next question comes from the line of John Tumazos with Very Independent Research.

Congratulations on the $2 plus and all of the good decisions over the last year, however painful they were that went into it.

I have a questions about the (inaudible) plant which I believe was started in maybe $100 million of a $250 million budget had been spent.

And the climax project where something like $200 million of $500 million had been spent.

I guess I have a strong enthusiasm for US projects that are already permitted, partly built, nobody shoots at you, throws your people in jail, easier places to operate, maybe.

How long can you hold those projects idle until you might be required to take a reserve against the investments?

What is the outlook for restarting those projects?

Also this morning molly mines in Australia had a $700 million financing for iron ore in molly from a Chinese company, , seize opportunity and does that weigh into your decision

Okay.

Let's, I am going to ask red to talk about the sulphur burner at safford.

Dave is here to talk about climax.

We own that climax land and sea.

So, we don't have any time requirements, time requirements about when to start.

We want to start that project.

It is the world as best development project in the malignum business, you're right, we'd spent money we have have mills in place.

e need two summers construction seasons to get that project going, about $350 million, and we would have the design capacity for 30 million pounds annually of cobalt and a very attractive cost structure and we're going to go forward with that.

We are the worlds largest producer of malignum, we have great positions in all of the mark places for that.

And as the market goes forward, we have constrained, production at Henderson, our stand alone mine.

We have climax ready to go and we're going to protect our market share.

We're going to be profitable, and we're going to do that at the right time.

We agree with you John, it is a great asset and we are looking forward to go forward to develop it.

The sulphur burner at stafford, you know, is affected by the sulfuric acid market which has changed so dramatically.

Over this past year.

Red, do you want to talk about that.

Thanks, Richard.

John, the sulphur burner project was stopped both to conserve cash and take advantage of the good asset fundamentals that we found quickly earlier this year, in the southwest.

We are continuing to re-evaluate when it would be appropriate to they initiate that investment as you say its permitted and ready to go.

And we're just looking for proper timing and opportunity on that.

It will save on logistics, and give us good long-term prices going forward or costs.

Thank you.

And in terms of the accounting question, Richard, how long would the safford asset plan or the climax project be able to sit idle before your auditors might challenge the carrying value?

Is it two years, four years, six years?

Thats just not an issue.

The resource -- the resource is so good and the outlook for the commodities are so strong, that this is not even -- its not even close.

So, it is not an issue.

Thank you.

Thanks, John.

Our next question comes from the line of Paul [Mathoud] with Stifel Nicolaus.

Good morning.

Good morning, Paul.

I was hoping you could talk a little bit more about your experience so fare with transportation out of the DRC.

And possibly maybe characterize some of your options to expand transport capacity with new production out at Tenke.

In particular, if you'd started any negotiations with entities outside of the DRC regarding rail routes or other forms of transportation.

Currently we are using the same route from south Africa that we used to bring in the massive amounts of materials we brought to site during construction, and so we are shifting copper and cobalt by truck down through from Tenke (inaudible) to (inaudible) and then on to Johanasberg by truck.

The transit time is taking 20 to 25 days.

We are talking with purchaser of the product, they are looking at taking the product from (inaudible) into (inaudible) so, there's alternatives.

The -- we are having discussions right now, more about restoring rail within the DRC.

That's where the infrastructure is so -- so low, actually Kathleen has given me numbers to show that we are averaging less than 20 days transit.

So, all of that's working well.

It is a long truck haul, it has a lot of trucks, but their contractors and again it is something that we've had experience in and working on for some time because of the inbound material for construction.

We are beginning -- we are engaged in discussions with the Government with some other parties about restoring rail options within the DRC, and ultimately, the -- the most favorable option would be to connect with railroads in (inaudible).

That which was the traditional route which is , (inaudible) is restoring its rail system now.

So, all of those things are items we are actively working

Okay.

Thanks.

Our next question comes from the line of Dave Katz with JPMorgan.

Hi, you guys have estimated $75 million exploration expense for 2009.

But with the $73 million that you've spent year to date that implies just $2 million in expenditure in 4Q '09.

Is that correct and should we expect such low levels in 2010 as well?

No, you shouldn't expect that.

No we, you know, $75 million was a general budget.

I think that number you are talking about includes --

Includes research.

Includes research, so, actually the budget you are comparing that to, was $75 million for exploration and $15 million for -- was it $20 million -- for research.

So, we're spending about on rate with our budget, we will be -- we want to spend money on exploration.

Our exploration has come up with ideas for -- that make sense, we're not going to constrain them by budget numbers because it adds such significant value.

We just -- a year ago as we were developing our plans, we were in a cash constraint mode that was going into the year.

We didn't know where we were going to be, this time of the year.and we had a lot of data and our exploration team could continue their work.

We didn't take off any emphasis on exploration, its just, we decided to curtail core drilling and some field work and continue to do analysis to see where we were going.

But with the understanding that you guys have a large amount of gray internal projects, you do anticipate exploration expenses increasing for 2010, correct?

Yes.

Okay, and then the second question would be with regard to the open market debt repurchases, previously you guys had mentioned that -- where as perhaps would be nice to be investment grade, it was not driving any of your behavior.

Is that still the case?

Right, we are able to operate effectively in the financing markets.

I think we have a lot of credibility with -- in credit markets with what we've done in the past and we don't see that as being constraint.

We -- we are investment grade rating -- rated by both S&P and Fitch, we believe we qualify for it with moodies and we will continue to talk with him about that.

But we don't see our ratings as being any sort of constraint strategically with what we want to do.

Okay, so the debt repurchase is purely -- are driven by a desire to increase flexibility of the company as well as to lower the annual interest expense?

Exactly.

Okay, thank you.

Your next question comes from the line of Brett Levy, with Jefferies and Company.

Yes, similar question to David's.

I understood wen obviously there was some really yields to your paper and how it attractive the returns might be.

But given that you have talked to a lot of different, much higher, return opportunities.

Why would debt buy backs be the best strategy here?

Because at this point you are capturing maybe a 6% to 7% return.

But, compare that with the return we have for the substantial amount of cash we have on our balance sheet.

And as we look forward, we are going to be continuing to generate cash.

So, we have the resource -- we're not constrained by any capital -- for capital spending or for exploration spending by cash.

So, we've got ample cash resources and when we have the opportunities of comparing the interest cost with virtually no amounts we get for cash it just makes sense to do it.

And in the long run, we want to have, a -- as we always have, want to have a very strong balance sheet.

And so its just minimizing negative spread on the cash?

Minimizing negative spread, improving the balance sheet.

Sounds good.

Thanks, very much, guys.

Alright, thank you.

Our next question comes from [Blane Ladette] with Jordan Securities.

Hi, good morning.

My question has already been answered.

Alright, thanks.

The next question comes from [Ben Ellius] with Sterne AG.

Thank you, good morning.

I have a question regarding CapEx.

I noticed in the (inaudible) that 2000 CapEx was estimated to be about $1 billion, and I read today that its now taken up to be about $1.4 billion.

I was wondering if there was any granularity in the CapEx?

Where thats going to be.

I know you've made the strategic shift in -- over the last 12 months and moving to higher ore grade lower costs mines and thats really worked for you.

And the way I look at CapEx, its really an indication of where you think demand supply is going to be in the long term.

So, you know I take it as a positive that you are taking CapEx up.

I was wondering if you could go through the split between like what men purchases and sort of repair and spare parts and also I think about 9 months ago, you cancelled some shovels from Joy Global, I was wondering if some of those equipment purchases that were delayed, third quarter, fourth quarter last year.

Now, coming back on with the better commodity pricing and better demand out look?

Well, Ben -- Ben, let me say we did cover in our slides where this capital spending is going to be directed and thats with the start up of the Miami operation and the optimization project at (inaudible) and there are slides on that.

In addition, we always are evaluating our maintenance capital spending and there are some increase in that.

We are going through a budget process right now in which we will update spending.

We expect over time for the reasons you said to see our capital spending rising.

We haven't reinstated the major expansion projects that we were previously engaged in.

And so there's not huge amounts of new equipment orders in this expansion.

But the redirecting of equipment and the engineering cost and the execution cost.

of what we're doing.

but they -- we have not yet begun to make major new expansions of equipment purchases, in fact we still have a substantial idled equipment fleet that we're looking to put back to work.

And do you think its more likely that you put that back to work?

Or move it -- as in the case as Miami?

Well, we are -- we have been taking advantage of moving.

And we ship trucks from the US to Indonesia, we've reallocated trucks from South America.

We ship trucks to South America for plants.

And so, earlier in the year we talking a good bit about how we were feeling with out inventory management and out supply chain management and our supply chain management and again, I tip my hat to the guys they really have been able to do this in a very effective way.

And its been one of the reasons this helped us reduce our costs -- unit costs by more than 30%.

Okay, thank you very much.

All right, thanks Ben.

We -- operator, do we have an other questions?

There are no further questions at this time.

Alright, on behalf of our team, we thank everyone's interest and appreciate your attention in this call and your continuing to follow our company.

Ladies and gentleman that concludes our call for today.

Thank you for your participation.

You may now disconnect.